There’s nothing quite like the feeling of owning your home outright. No more loan repayments, no more worries about where interest rates are heading…just you and your home with plenty of extra cash left in the kitty each month.
It’s not a pipe-dream. Follow our five steps to pay off your home loan el pronto.
1. Check you’ve got the right loan for your needs
Most borrowers take the view that “cheapest is always best” but the cheapest loan may not necessarily be the best loan for you.
For example, the selection criteria for a first home buyer can be vastly different to that of a property investor in the acquisition phase of growing a property portfolio.
Whatever the case, the ideal loan must have the right blend of a competitive rate plus features you will actually use to make your loan easier to manage and give you results that benefit you the most.
2. Look for hidden charges
It is commonly said that paying monthly account keeping fees on your home loan can be like paying a higher interest rate. Many banks have now also scrapped monthly account keeping fees so how do you know which is best for you?
The message here is to make sure to check the rate and fees as a total cost.
Paying a monthly or annual fee may also qualify you for a discounted interest rate which could mean lower repayments, so it’s definitely worth investigating before making a decision. For example, Bank A may charge a $10 per month fee yet it can still work out cheaper than bank B who charge no fees at all.
3. Make regular extra repayments
Every additional extra dollar paid into your home loan each week will see your home loan paid off sooner.
That is because additional repayments come straight off the loan balance. That way, next month’s interest charge is lower, so more of your regular repayment goes towards paying down the loan balance.
It is a great way to make meaningful progress with your home loan.
Making extra repayments or using an offset account is the easiest way to save money in the long run.
Every dollar saved in your offset account has a compounding effect thereby increasing your savings on the interest charged each month.
This is the easiest way to pay your home loan off faster. Whilst these can be small steps in the beginning, they result in some very big savings in the long term.
4. Add a lump sum payment
There are times throughout the year when a cash windfall may come your way such as a tax refund, an end of year work bonus, or some unexpected overtime earnings. Add or all part of these windfalls as a lump sum repayment to your loan or your offset account and watch the balance melt away. For example, by depositing the $2,000 bonus you have just received in your offset account means next month you are charged less interest on the $2,000 deposited. This is a great way of charging ahead on paying down your mortgage faster.
5. Use your home loan as a savings account
Deposit spare cash into your home loan instead of a separate savings account. You will save more in interest on your loan than you will earn with a separate savings account, and as an added benefit, this will enable you to pay off your home much faster.
If your home loan offers redraw (as most do), you will be able to access the extra funds deposited anytime but may come with some restrictions.
Your other choice would be to choose a home loan that offers an offset account with more flexibility and ease of use and best of all you have proof of progress every month when you receive your home loan statement (very motivating!)
If you would like us to review your circumstances to see how you could pay off your home loan sooner, please feel free to call us on 02 8004 2222 or book a time to chat with George.
PS This article is prepared based on general information. It does not take into account individual financial or property objectives or needs and is not financial product or investment advice.